Mastercard International Inc., Gurgaon V. ADIT, New Delhi

ITA 3384/DEL/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5498 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 03-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 29-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ANUMEHA JAIN; ABHISHEK CHAWLA
• Keywords: Business income; Double taxation relief; Rule of consistency; Permanent establishment; Revised return
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL I.T.A.NO. 3384(DEL)/2009 ASSESSMENT YEAR: 2005-06 MASTERCARD INTERNATIONAL INC., ASSISTANT DIRECTOR OF INCOME- C/O AUTHORISED REPRESENTATIVES TAX, CIRCLE 3(1), INTERNATIONAL S.R. BATLIBOI & ASSOCIATES, VS. TAXATION, NEW DELHI. 8 TH FLOOR, GOLF VIEW CORPORATE, TOWER-B, SECTOR-42, SECTOR ROAD, GURGAON. I.T.A.NO. 3384(DEL)/2009 ASSESSMENT YEAR: 2005-06 ASSISTANT DIRECTOR OF INCOME- MASTERCARD INTERNATIONAL INC., TAX, CIRCLE 3(1), INTERNATIONAL C/O AUTHORISED REPRESENTATIVES TAXATION, NEW DELHI. VS. S.R. BATLIBOI & ASSOCIATES, 8 TH FLOOR, GOLF VIEW CORPORATE, TOWER-B, SECTOR-42, SECTOR ROAD, GURGAON. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ABHISHEK CHAWLA & MS. ANUMEHA JAIN DEPARTMENT BY : SHRI ASHWAN I KUMAR, CIT, DR ORDER PER K.G. BANSAL : AM THESE CROSS APPEALS OF THE ASSESSEE AND THE RE VENUE EMANATE FROM THE ORDER OF CIT(APPEALS)-XXIX, NEW DELHI, PASSED ON 9.4.2009 IN APPEAL NO. 185/2007-08, AND PERTAIN TO ASSESSMENT YEAR 2005-06. THE ITA NOS. 3384&3385(DEL)/2009 2 APPEALS WERE ARGUED IN A CONSOLIDATED MANNER BY THE LD. COUNSEL FOR THE ASSESSEE AND THE LD. DR. THEREFORE, A CONSOLIDAT ED ORDER IS PASSED. 1.1 THE ASSESSEE HAS TAKEN THREE GROUNDS IN I TS APPEAL, WHICH READ F AS UNDER:- 1. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS)- XXIX, NEW DELHI [LD. CIT(A)] HAS ERRED IN LA W AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN PROCEE DING WITH THE ASSUMPTION THAT THE APPELLANT HAS A PERMANENT ES TABLISHMENT (PE) IN INDIA AND HENCE THE APPELLANT IS LIABLE TO BE TAXED IN INDIA WITH RESPECT TO BUSINESS INCOME REC EIVED FROM INDIAN MEMBER BANKS. 1.1 THE LD. CIT(A) ALSO FAILED TO APPRECIATE THA T THE APPELLANT HAS ACCEPTED TAXABILITY IN INDIA IN EARLIER YEARS MERELY TO BUY PEACE AND AVOID LITIGATION. THE R ETURN OF INCOME FOR THE SUBJECT YEAR WAS FILED ON THE B ASIS THAT TOTAL PROFITS ON REVENUE RECEIVED FROM INDIA, WIT HOUT ANY ATTRIBUTION OF PROFITS TO INDIAN OPERATIONS CAR RIED OUT BY ITS LIAISON OFFICE IN INDIA, ARE TO BE TAXED IN IND IA. HOWEVER, THIS DOES NOT MEAN THAT THE APPELLANT AGREES TH AT IT HAS A PE IN INDIA. 1.2 WITHOUT PREJUDICE TO ABOVE, EVEN IF IT IS ASSUMED THAT MCII HAS A PE IN INDIA, THE LD. CIT(A) HAS F AILED TO APPRECIATE THE FACT THAT SINCE THE MAJOR OP ERATIONS OF THE APPELLANT AND MAJORITY OF ITS ASSETS (ALONG WIT H ASSOCIATED RISKS AND REWARDS) ARE SITUATED OUTSIDE INDIA, ONLY MARGINAL PROFITS ARISING FROM INDIAN MEMBER BANKS AND A TTRIBUTED TO ACTIVITIES CARRIED OUT IN INDIA, SHOULD BE TAXAB LE IN INDIA. 2. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT( A) HAS ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCE S OF THE CASE BY SETTING ASIDE THE ASSESSMENT AND REDIREC TING THE CASE TO THE ASSESSING OFFICER (AO). THIS WAS D ONE DESPITE THE ITA NOS. 3384&3385(DEL)/2009 3 FACT THAT THE LD. CIT(A)HAD COME TO THE CONCLUSIO N THAT THE GROSS NET OPERATING MARGIN (GNOM) METHOD WHICH WAS FOLLOWED BY APPELLANT IN THE REVISED RETURN OF IN COME ON THE BASIS OF ASSESSMENT ORDERS FOR TWO IMMEDIATELY PR ECEDING YEARS ( I.E., AY 2003-04 AND AY 2004-05) FOR DETERMINING TAXABLE INCOME OF THE APPELLANT APPEARS TO BE RE ASONABLE ON GROUNDS OF REASONABILITY AND CONSISTENCY. 2.1 THAT THE LD. CIT(A) SHOULD HAVE DIRECTED THE AO TO FOLLOW THE GNOM METHOD FOR ESTIMATING TAXABLE INCOME OF THE APPELLANT ON GROUNDS OF CONSISTENCY AND REASO NABILITY. 2.2 THAT THE LD. CIT(A) HAS ERRED IN LAW AND FACTS OF THE CASE IN COMING TO THE CONCLUSION THAT ALTHOUGH THE GNOM METHOD IS AN APPROPRIATE METHOD ON THE GROUNDS OF REASONABILITY AND CONSISTENCY, THE AO IS WITHIN H IS JURISDICTION TO COMPUTE THE INCOME BY THE METHOD ADOPTED IN THE ORIGINAL RETURN OF INCOME IN CASE THE METHOD ADOPTED IN THE REVISED RETURN IS NOT IN ACCORDANCE WITH LA W. THIS WAS DONE DESPITE THE FACT THAT THE LD. CIT(A) HAD OBSERVED THAT NO SPECIFIC DEFICIENCY, INACCURACY, OR MISTAKE HAS BEEN POINTED OUT BY THE ASSESSING OFFICER IN THE REVIS ED RETURN. 3. THAT THE LD. CIT(A) HAS NOT ADJUDICATED ON TH E GROUND RAISED AGAINST LEVY OF INTEREST UNDER SECTION 234B OF THE ACT. THE LD. CIT(A) SHOULD HAVE DECIDED THE ISSUE ON MERITS AS AGAINST DISPOSING THE GROUND AS BEING CONSEQUENT IAL. 1.2 THUS, IT WILL BE SEEN THAT THE ASSESSEES GROUNDS RELATING TO THREE ISSUES REGARDING -(I) LIABILITY TO BE ASSE SSED IN INDIA; (II) COMPUTATION OF INCOME IN CASE IT IS LIABLE TO BE ASSESSE D; AND (III) LIABILITY TO PAY INTEREST U/S 234B. ITA NOS. 3384&3385(DEL)/2009 4 1.3 THE ONLY GROUND TAKEN BY THE REVENUE IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD . CIT(APPEALS) ERRED IN VIRTUALLY SETTING ASIDE THE CASE BACK TO THE AO, WHICH IS BEYOND THE SCOPE OF HIS POWERS, BY DIRECTING HIM TO RECOMPUT ED THE DISALLOWANCE OF EXPENSES AND DEDUCTION U/S 40(C) WITHOUT APPREC IATING THE FACT THAT THE AO HAD DONE THIS EXERCISE ALREADY AT THE TI ME OF PASSING THE ASSESSMENT ORDER. 2. BOTH THE PARTIES REFERRED TO THE BACKGROUND FACTS WHICH ARE IN DISPUTE. THESE HAVE BEEN STATED IN THE WRITT EN SUBMISSIONS OF THE ASSESSEE FILED ON 13.1.2010. THE FACTS MENTIONE D THEREIN ARE THAT THE ASSESSEE OBTAINED APPROVAL FROM THE RESERVE BAN K OF INDIA FOR OPENING A LIAISON OFFICE IN MUMBAI ON 26.5.1992. SUCH OFFI CE WAS SUBSEQUENTLY OPENED. THIS OFFICE WAS ALLOWED TO UNDERTAKE O NLY LIAISON ACTIVITIES AND TO ACT AS A CHANNEL OF COMMUNICATION BETWEEN T HE ASSESSEE, WHICH IS HEAD OFFICE AND MEMBER BANKS. SUBSEQUENTLY, THE ASSESSEE ALSO OBTAINED PERMISSION TO OPEN AN ADDITIONAL LIAISON OFFIC E AT GURGAON ON SIMILAR TERMS AND CONDITIONS. THE ASSESSEE WAS OF THE V IEW THAT SINCE IT WAS NOT CARRYING ON ANY BUSINESS ACTIVITIES IN INDIA AS IT DID NOT HAVE ANY PERMANENT ESTABLISHMENT (PE FOR SHORT) IN IND IA, IT WAS NOT LIABLE TO BE ITA NOS. 3384&3385(DEL)/2009 5 ASSESSED UNDER THE INCOME-TAX ACT, 1961 (THE ACT FOR SHORT). HOWEVER, THE AO ASSESSED THE ASSESSEE FOR ASSESSMENT YEARS 1996-97 TO 2000-01 ON THE TOTAL FEES RECEIVED FROM INDIAN CUSTO MER BANKS AND FINANCIAL INSTITUTIONS. IN ORDER TO RESOLVE THE CONTROVE RSY, THE ASSESSEE FILED AN APPLICATION FOR MUTUAL AGREEMENT PROCEDURE (MAP FOR SHORT) UNDER ARTICLE 27 OF THE INDO-US TAX TREATY (DTAA FO R SHORT). THE COMPETENT AUTHORITIES OF THE TWO COUNTRIES ARRIVED AT A RESOLUTION FOR THE AFORESAID FIVE YEARS, WHICH WAS ACCEPTED BY THE ASSESSEE AS ALL THE APPEALS PENDING IN ITS CASE WERE WITHDRAWN. THE MAIN CONCLUSI ONS ARRIVED AT BY THE COMPETENT AUTHORITIES WERE THAT (I) ALL AMOUNTS RECEIVED BY THE ASSESSEE FROM INDIAN MEMBER BANKS AND INSTITUTIONS SHALL C ONSIST BUSINESS ACTIVITIES UNDER ARTICLE 7 OF THE DTAA; (II) THE BUSINESS PROFITS WILL BE TAXED IN INDIA ON THE FOOTING THAT THE ASSESSEE H AD A PE IN INDIA DUE TO PRESENCE OF ITS PERSONNEL WHO VISITED INDIA AND CARRIED OUT ACTIVITIES WHICH WERE BEYOND THE PREPARATORY AND AUXILIARY ACTIVITIES; (III) IN DETERMINING THE NET PROFIT, ALL EXPENSES INCURRE D FOR THE PURPOSE OF BUSINESS OF THE PE IN INDIA SHALL BE ALLOWED, SUBJECT TO LIMITATION ON EXPENSES UNDER THE DOMESTIC LAW OF INDIA AND U NDER ARTICLE 7 OF THE DTAA. THE INCOMES OF THE ASSESSEE FOR THE AF ORESAID YEARS WERE REVISED ACCORDINGLY. ITA NOS. 3384&3385(DEL)/2009 6 2.1 FOR ASSESSMENT YEARS 2001-02 AND 2002-03, TH E ASSESSEE SUBMITTED RETURNS SHOWING INCOMES ON THE BASI S MENTIONED IN THE RESOLUTION OF THE COMPETENT AUTHORITIES. RETURNS FOR ASSESSMENT YEARS 2003-04 AND 2004-05 WERE ALSO FURNISHED IN THE SAME MANNER. 2.2 AS MENTIONED EARLIER, THE RETURN FOR ASSE SSMENT YEAR 2005-06 WAS ALSO SUBMITTED COMPUTING INCOME ON THE BAS IS OF RESOLUTION OF THE COMPETENT AUTHORITIES. HOWEVER, IN THE ASSESSME NTS FOR ASSESSMENT YEARS 2003-04 AND 2004-05, THE AO APPLIED RUL E 10 OF THE INCOME-TAX RULES, 1962, FOR COMPUTING THE INCOME. IN VIEW THEREOF, THE ASSESSEE REVISED THE RETURN FOR ASSESSMENT YEAR 2005 -06 ON THE BASIS OF ASSESSMENT FOR ASSESSMENT YEAR 2003-04. IN T HE COURSE OF ASSESSMENT PROCEEDINGS, THE AO CALLED FOR EVIDENCE IN SUP PORT OF COMMON EXPENSES INCURRED ABROAD FOR PROVIDING GLOBAL PROCESSING S ERVICE. IT WAS EXPLAINED THAT THE ASSESSEE IS NOT IN A POSI TION TO PRODUCE SUCH EVIDENCE AS WAS THE CASE IN EARLIER YEARS. HOWEVER, THE AO DID NOT ACCEPT THIS EXPLANATION AND MADE DISALLOWANCES FROM PERSONNEL EXPENSES, PROFESSIONAL FEES, DATA PROCESSING C HARGES, TRAVEL AND MEETING EXPENSES, ADVERTISEMENT AND MARKETING EXPENSES AND OTHER OPERATING ITA NOS. 3384&3385(DEL)/2009 7 EXPENSES. THIS LED TO DISALLOWANCE OF EXPENSE S AMOUNTING TO RS. 12.65 CRORE. THE INCOME WORKED OUT BY HIM AMOUNTED TO 59.43% OF THE GROSS REVENUE. 3. THE FIRST ISSUE TO BE DECIDED IN THIS CAS E IS WHETHER, ANY INCOME OF THE ASSESSEE IS LIABLE TO BE TAXED IN INDIA? THE CASE OF THE LD. COUNSEL WAS THAT THE ASSESSEE ACCEPTED THE RESOLUTION O F COMPETENT AUTHORITIES AND SUBSEQUENT TWO ASSESSMENT ORDERS WITH A VIEW TO AVOID LITIGATION AND HAVE CERTAINTY IN THE MATTER. HOWEVER, THIS ISS UE WAS NOT PRESSED BY HIM. THE CASE OF THE LD. DR IN REPLY, MENTION ED IN DETAIL IN THE WRITTEN SUBMISSIONS, WAS THAT THE GROUND REGARDING NON-EX ISTENCE OF PE HAS NOT BEEN PRESSED BY THE LD. COUNSEL. IN VIEW OF THE PAST HISTORY OF THE CASE AND THE FACT THAT THIS GROUND HAS NOT BEEN P RESSED, THIS ISSUE IS DECIDED IN FAVOUR OF THE REVENUE AND AGAINST THE A SSESSEE. 3.1 COMING TO THE ISSUE REGARDING THE COMPUTATI ON OF INCOME, THE FACTS ARE THAT THE RESOLUTION OF THE COMPETENT AU THORITIES ALLOWED DEDUCTION FROM THE GROSS REVENUE IN RESPECT OF (I) EXPENSES INCURRED BY LIAISON OFFICE IN INDIA, AND (II) EXPENSES IN CURRED OUTSIDE INDIA RELATING TO ACTIVITIES CARRIED OUT IN INDIA AND ALSO EXPENSES FOR ITA NOS. 3384&3385(DEL)/2009 8 CARRYING OUT GLOBAL OPERATIONS, WHICH COULD BE ALLOCATED TO THE INDIAN OPERATIONS. THIS METHOD HAS BEEN TERMED AS N ET MARGIN METHOD BY THE LOWER AUTHORITIES. THIS METHOD WAS EMPLO YED IN ASSESSMENT YEARS 1996-97 TO 2002-03. HOWEVER, THIS METHOD WAS CHA NGED IN ASSESSMENT YEARS 2003-04 AND 2004-05 BY THE AO. IN THESE YEARS, HE ESTIMATED THE INCOME OF THE ASSESSEE UNDER RULE 10 BY USING GLOBAL NET OPERATING MARGIN METHOD (GNOM FOR SHORT). THIS LED TO ASSESSMENT AT POSITIVE INCOMES AGAINST THE LOSSES DECLARED FOR THESE TWO YEARS. THIS VERY METHOD WAS ALSO ADOPTED BY THE ASSESSEE WHILE F ILING THE REVISED RETURN. HOWEVER, THE AO DID NOT FOLLOW THIS METHOD BY ST ATING THAT COMPETENT AUTHORITIES OF THE TWO COUNTRIES DID NOT RESO LVE TO ADOPT THIS METHOD AS THEY HAD RESOLVED TO COMPUTE TOTAL INCOME ON NET MARGIN METHOD. IN APPEAL, THE LD. CIT(APPEALS) H ELD THAT THE REVISED RETURN FILED BY THE ASSESSEE WAS A VALID RETURN, WH ICH OUGHT TO HAVE BEEN TAKEN INTO ACCOUNT FOR THE COMPUTATION OF THE TOTA L INCOME. IT WAS FURTHER HELD THAT THE TOTAL INCOME HAS TO BE DETERMINED AS PER PROVISIONS OF LAW AND, THEREFORE, THE AO HAD JURISDICTION TO COMP UTE THE INCOME ON NET MARGIN METHOD IF GNOM METHOD WAS NOT IN ACCORD ANCE WITH LAW. THEREAFTER, THE LD. CIT(A) CONSIDERED THE CLAIM OF THE ASSESSEE IN REGARD TO VARIOUS EXPENSES AND APPLICABILITY OF THE LOCAL LAW. HE CAME ITA NOS. 3384&3385(DEL)/2009 9 TO THE CONCLUSION THAT LOOKING TO THE PECULIARI TY OF FACTS AND THE PROVISION CONTAINED IN SECTION 44C, THIS MATTER HAS TO BE RE-EXAMINED BY THE AO. 3.2 THE CASE OF THE LD. COUNSEL BEFORE US WAS THAT THE AO HIMSELF HAD CHANGED THE METHOD OF COMPUTATION OF TOTAL INCOME FROM NET MARGIN METHOD TO GNOM METHOD. THEREFORE, IT WAS IN THE INTEREST OF CONSISTENCY THAT THE SAME SHOULD BE FOLLOWED IN THIS YEAR. THE ASSESSEE HAD FOLLOWED THIS METHOD IN THE REVISED RETURN. ACCORDINGLY, IT WAS ARGUED THAT THE TOTAL INCOME RETURNED THEREIN OUGHT TO HAVE BEEN ACCEPTED. IN ORDER TO SUPPORT HIS CONTENTIONS, RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321, IN WHICH THE HONBL E COURT DID TAKE INTO ACCOUNT THE POSITION OF LAW THAT THE PRINCIPLE OF RES-JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS, AS EACH YEAR WAS A SELF-CONTAINED YEAR OF ASSESSMENT. HOWEVER, IT WAS HELD THAT WHERE A FUNDAMENTAL ASPECT PERMEATES THROUGH DIFFERENT ASSESSMENT YEAR, ON WHICH A DECISION HAS TAKEN ONE WAY OF THE OTHER AND THE PARTIES HA VE ALLOWED THAT DECISION TO HOLD GOOD, IT WOULD NOT BE APPROPRIATE TO CHAN GE THAT POSITION IN A SUBSEQUENT YEAR. THE COURT WAS AT PAINS TO ST ATE THAT THIS RATIO IS ITA NOS. 3384&3385(DEL)/2009 10 CONFINED TO THE FACTS OF THE CASE ONLY AND SHO ULD NOT BE TREATED AS AN AUTHORITY FOR GENERAL APPLICATION. FURTHER, RELIANCE WAS PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NEW POLY PACK (P) LTD. (2000) 245 ITR 492. IN THAT CA SE, RENTAL INCOME FROM FACTORY BUILDING WAS BEING ASSESSED AS BUSINES S INCOME, BUT DURING THE COURSE OF ASSESSMENT, THE AO ASSESSED THE RENT UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE CIT(A) AND THE TRIBUNA L HELD THE MATTER IN FAVOUR OF THE ASSESSEE BY POINTING OUT THAT THE INCOME WAS HELD TO BE AS BUSINESS INCOME IN EARLIER YEARS. THE HONBLE COURT HELD THAT FOR THE SAKE OF CONSISTENCY THE SAME VIEW SHOULD CONTINU E TO PREVAIL IN SUBSEQUENT YEARS UNLESS THERE IS SOME MATERIA L CHANGE IN THE FACTS OF THE CASE. RELIANCE WAS ALSO PLACED ON THE D ECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ARJ SECURIT Y PRINTERS (2003) 264 ITR 276. IN THAT CASE, THE TRIBUNAL HAD ALLO WED RELIEF TO THE ASSESSEE U/S 80-I. THEREFORE, SIMILAR RELIEF WAS G RANTED IN SUBSEQUENT YEARS. THE EARLIER ORDERS WERE NOT CHALLENGED AND HA D ATTAINED FINALITY. THE HONBLE COURT HELD THAT WHEN THERE IS NO CHANG E IN THE BUSINESS OF THE ASSESSEE, RELIEF U/S 80I CANNOT BE DENIED TO IT IN RESPECT OF SOME ASSESSMENT YEARS. THEREFORE, THE ORDER OF THE TRIB UNAL WAS UPHELD. ITA NOS. 3384&3385(DEL)/2009 11 3.3 IN REPLY, THE LD. DR SUBMITTED THAT IN TH E PAST THE WHOLE OF THE REVENUE RECEIVED FROM CLIENTS IN INDIA WAS ATTRIBUTED TO THE PE. THIS POSITION WAS ACCEPTED BY THE ASSESSEE ON THE B ASIS OF RESOLUTION OF THE COMPETENT AUTHORITIES FOR ASSESSMENT YEARS 1996 -97 TO 2000-01. THE ASSESSEE CONTINUED TO FILE THE RETURNS FOR S UBSEQUENT YEARS ON THIS BASIS. HOWEVER, FOR THE FIRST TIME IN ASSESSMENT YEAR 2005-06, IT WAS PLEADED THAT PROFITS ATTRIBUTABLE TO PE IN INDIA ONLY SHOULD BE BROUGHT TO TAX. THIS WAS CONTRARY TO THE POSITION ACCEPTED IN PAST RIGHT UP TO ASSESSMENT YEAR 2004-05. FURTHER, IT WAS SUB MITTED THAT THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM THAT CERTAIN EXPENSES INCURRED OUTSIDE INDIA COULD BE ATTRIBUTED TO THE PE IN INDIA. THEREFORE, THE AO WAS JUSTIFIED IN MAKING CERTAIN DISALLOWANCES BEFOR E COMPUTING THE INCOME. THE LD. CIT(APPEALS), EXCEEDING HIS JURISDICT ION, RESTORED THE MATTER TO THE FILE OF THE AO, WITH A VIEW TO TAKE THE RE VISED RETURN INTO ACCOUNT AND RE-COMPUTE THE INCOME ON THAT BASIS. HE, H OWEVER, ALSO DIRECTED THAT THE COMPUTATION OF INCOME ON A FAIR BASIS WAS WITHIN THE JURISDICTION OF THE AO. IT WAS HIS CASE THAT THE ORDER OF TH E AO IS REQUIRED TO BE CONFIRMED ON THE BASIS OF PRINCIPLE OF CONSISTENC Y AS THIS SHOULD BE SUPPORTED THE CASE OF THE REVENUE AND NOT THAT OF THE ASSESSEE. ITA NOS. 3384&3385(DEL)/2009 12 3.4 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND RIVAL SUBMISSIONS. IT IS COMMON GROUND OF BOTH THE PARTIES THAT A CO NSISTENT APPROACH HAS TO BE FOLLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE HAS BEEN ASSESSED TO TAX SINCE ASSESSMENT YEA R 1996-97. AS THERE WERE DISPUTES ABOUT THE LIABILITY OF THE ASSESSEE TO T AX AS WELL AS COMPUTATION OF INCOME, THE ASSESSEE MOVED AN APPLICATION F OR RESOLUTION OF DISPUTES UNDER MAP. THE COMPETENT AUTHORITIES OF THE TW O COUNTRIES CAME TO AN AGREED RESOLUTION THAT (I) THE PERSONNEL OF THE ASSESSEE WHO VISITED INDIA AND CARRIED OUT ACTIVITIES ON BEHALF OF THE ASSESSEE CONSTITUTED ITS PE AS THEIR ACTIVITIES EXCEEDED PREPARATORY A ND AUXILIARY ACTIVITIES, (II) ALL AMOUNTS RECEIVED BY THE ASSESSEE FROM ITS MEMBERS IN INDIA SHALL CONSTITUTE THE REVENUE OF THE PE, AND (III) D EDUCTION SHALL BE ALLOWED FOR ALL EXPENSES INCURRED IN INDIA AND OUTSIDE IND IA ATTRIBUTABLE TO THE RECEIPTS FROM INDIAN MEMBERS SUBJECT TO LIMITA TION PLACED BY THE DOMESTIC LAW OF INDIA. THIS RESOLUTION WA S ACCEPTED BY THE ASSESSEE AS ALL APPEALS IN THIS MATTER FOR ASSESSMENT YEARS 1996-97 TO 2000-01 WERE WITHDRAWN. THE ASSESSMENTS FOR ASSESSMENT YEARS 2001-02 AND 2002-03 WERE MADE ON THE SAME LINES. HOWEVER , THE AO CHANGED THE METHOD OF ASSESSMENT IN ASSESSMENT YEARS 200 3-04 AND 2004-05 AND FOLLOWED THE GNOM METHOD, OSTENSIBLY FOR TH E REASON THAT THE ITA NOS. 3384&3385(DEL)/2009 13 ASSESSEE WAS NOT IN A POSITION TO FURNISH EVIDE NCE IN RESPECT OF COMMON EXPENSES INCURRED OUTSIDE INDIA. SUCH WAS AL SO THE POSITION IN EARLIER YEARS. THE ASSESSEE REVISED ITS RETURN OF INCO ME FOR ASSESSMENT YEAR 2005-06 TO BRING IT IN LINE WITH GNOM METHOD OF COMPUTING THE TOTAL INCOME. THE AO TREATED THIS RETURN AS INV ALID AND MENTIONED THAT THIS METHOD, PERMITTED UNDER RULE 10, WAS NOT TH E METHOD PRESCRIBED BY THE COMPETENT AUTHORITIES. THEREFORE, THE QUEST ION IS WHETHER NET MARGIN METHOD IS THE CONSISTENT METHOD OF GNOM METHOD I S THE CONSISTENT METHOD LOOKING TO THE HISTORY OF THE CASE. WE ARE OF THE VIEW THAT ASSESSMENTS FOR 7 YEARS FROM ASSESSMENT YEAR 1 996-97 TO ASSESSMENT YEAR 2002-03 WERE MADE ON THE BASIS OF THE RESOL UTION OF THE COMPETENT AUTHORITIES AND THIS METHOD OF COMPUTATION HAS BE EN TERMED AS NET MARGIN METHOD. THIS METHOD WAS REVISED BY THE AO IN ASSESSMENT YEARS 2003-04 AND 2004-05 TO GNOM METHOD. IN O UR CONSIDERED VIEW, THIS CHANGE WAS NOT PERMISSIBLE ON THE PRINCIPLE OF CONSISTENCY FOR THE REASON THAT THE PROBLEM REGARDING ASCERTAINMENT OF COMMON EXPENSES RELATABLE TO THE PE EXISTED IN ALL EARLIER YEARS ALSO. NOTWITHSTANDING THIS PROBLEM, THE NET MARGIN METHOD WAS FOLLOWE D. THEREFORE, WE ARE OF THE VIEW THAT THIS CONSISTENT METHOD COULD NO T HAVE BEEN CHANGED BY THE AO IN ASSESSMENT YEARS 2003-04 AND 2004-05. IN OTHER WORDS, THE ITA NOS. 3384&3385(DEL)/2009 14 AFORESAID NET MARGIN METHOD IS THE CONSISTENT ME THOD OF COMPUTATION OF THE TOTAL INCOME OF THE ASSESSEE, WHICH SHOULD A LSO BE FOLLOWED IN APPEAL BEFORE US, WHICH PERTAINS TO ASSESSMENT YEAR 2005-06. IN THIS YEAR, THE ORIGINAL RETURN WAS FILED ON THE BASIS O F AFORESAID METHOD, BUT A REVISED RETURN WAS ALSO FILED ON GNOM METHOD BECAUSE OF ASSESSMENT ORDERS PASSED BY THE AO FOR ASSESSMENT YEARS 200 3-04 AND 2004-05. LOOKING TO OUR FINDING ABOVE, IT IS HELD THAT THE METHOD FOLLOWED IN THIS REVISED RETURN WAS NOT THE CONSISTENT METHOD OF C OMPUTING THE TOTAL INCOME. THEREFORE, THE AO IS DIRECTED TO COMPUTE THE PROFIT ON THE BASIS OF NET MARGIN METHOD. THE DIFFICULTY IN THIS REGARD IS TO ALLOCATE GENERAL EXPENSES INCURRED OUTSIDE INDIA TO THE INCOME AT TRIBUTABLE TO THE PE. WE ARE OF THE VIEW THAT SUCH DIFFICULTY EXISTED IN EARLIER YEARS ALSO WHEN THIS METHOD WAS EMPLOYED. THEREFORE, THE AO IS DIREC TED TO RE-COMPUTE THE INCOME ON THE AFORESAID BASIS AFTER TAKING TH E EXPLANATION OF THE ASSESSEE INTO ACCOUNT. BOTH THE SIDES WILL BE AT LIBERTY TO LEAD EVIDENCE IN THIS REGARD AFRESH. THIS ORDER IS SUBJECT TO THE LIMITATION THAT THE ASSESSED INCOME SHALL IN NO CASE EXCEED THE EAR LIER ASSESSED INCOME FOR THE REASON THAT THE TRIBUNAL HAS NO POWER TO ENH ANCE THE ASSESSMENT. THUS, THIS ISSUE IS RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATION. ITA NOS. 3384&3385(DEL)/2009 15 4. GROUND NO. 3 IS REGARDING NON-CHARGEABILITY OF INTEREST U/S 234-B. THE CASE OF THE ASSESSEE WAS THAT THE WHOLE OF ITS REVENUE WAS LIABLE TO DEDUCTION OF TAX AT SOURCE U/S 195 OF THE A CT. THEREFORE, THERE WAS NO LIABILITY TO PAY ADVANCE-TAX U/S 209. IN S UCH A SITUATION, THE ASSESSEE COULD NOT BE FASTENED WITH THE LIABILITY U/S 234 -B. WE FIND THAT THIS ISSUE STANDS COVERED BY THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MOTOROLA INC., 95 ITD 269. FOLLOWING TH AT DECISION, IT IS HELD THAT THE ASSESSEE IS NOT LIABLE TO PAY INTEREST U/S 234B OF THE ACT. 5. THE ONLY GRIEVANCE RAISED BY THE REVENUE IS TH AT THE LD. CIT(APPEALS) EXCEEDED HIS JURISDICTION WHEN COMPUTATION OF INCO ME WAS RESTORED TO THE FILE OF THE AO. WE HAVE RESTORED THE COMPUTATIO N OF INCOME TO THE FILE OF THE AO AND, THUS, THIS GROUND BECOMES INFRUCTUO US. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE RE VENUE IS DISMISSED AS INFRUCTUOUS. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON MARCH, 2010. (C.L. SETHI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: MARCH, 2010.